UPDATE 1-Russia says sees LNG as S.Stream alternative

Thu Mar 10, 2011 4:22pm EST

Related Topics

* LNG seen as alternative to underwater section

* Energy Ministry cites risks posed by EU energy laws

* Says LNG provides more flexibility (Adds quotes, background)

By Gleb Bryanski

MOSCOW, March 10 (Reuters) - Russia said on Thursday it may drop plans to lay an underwater section of the South Stream gas pipeline and build a liquefied natural gas plant instead, citing risks posed by new European energy rules.

An Energy Ministry statement said "the possibility of construction of an LNG plant on the Black Sea coast is being considered as an alternative to the underwater part of the South Stream pipeline."

"The realisation of the South Stream project carries certain risks of external nature, linked to the so-called Third Energy Package coming into force," the ministry said.

The new rules impose limits on the ownership of EU pipeline infrastructure by gas suppliers and call for the "unbundling" of over-concentrated ownership. Under the rules, Russia could be forced to sell off some of its pipeline network in the EU.

Russian Prime Minister Vladimir Putin openly confronted the EU leadership over the package, calling it "robbery" and warning that the rules could drive gas prices higher. [ID:nLDE71N23Y]

The Energy Ministry said risks concerned property rights for gas pipelines, uncertainty over volumes, lack of consumption forecasts as well as the EU's determination to develop alternative energy sources.

The statement from the Energy Ministry sought to clarify the outcome of a meeting Wednesday between Putin and Energy Minister Sergei Shmatko at which the idea was first floated. [ID:nLDE7282F6]

Putin has until now backed the $21.5 billion South Stream link to transport up to 63 billion cubic metres of gas to central and southern Europe. Russia plans to launch the pipeline in 2015, while the LNG option has never been discussed.

The decision represents a major shift in Russia's energy policy, which until now was firmly in favour of building pipeline infrastructure.

The Russian initiative comes amid disruptions of Libyan gas supply to Italy, seen as the main consumer of South Stream gas, which forced the country to buy more gas from Russia's gas export monopoly Gazprom (GAZP.MM).

South Stream is controlled by Gazprom and Italian group Eni (ENI.MI), with French power company EDF SA (EDF.PA) also holding a stake. The pipeline will go through Turkish and Bulgarian territorial waters in the Black Sea.

The ministry said LNG produced at a future Total (TOTF.PA) and Novatek NOTK.MM plant in the Arctic could also be used for deliveries to South Stream partners.

South Stream competes with OMV's (OMVV.VI) $11 billion Nabucco pipeline, which is also due for launch in 2015 and is backed by the European Union.

Two routes for the land section are currently under review -- through Greece and Italy, which is seen as the main customer, or through Bulgaria, Serbia and Hungary towards Slovenia and Austria.

The ministry said the "flexibility of LNG deliveries" allowed it to have "dialog with all the countries in the Black Sea area both over deliveries for domestic consumption as well as transit to final customer."

Turkey's prime minister, Tayyip Erdogan, is expected to visit Moscow next week for energy talks, while Putin will go to Slovenia and Serbia, both potential buyers of South Stream gas, later this month.

FACTBOX on gas pipeline projects to Europe [ID:nLDE7221CA] (Additional reporting by Vladimir Soldatkin; Editing by Walter Bagley)

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